When to drawdown with LTA a political football

[JohnB]

I was at 97% LTA when I turned 55 last week, and was contemplating an aggressive drawdown policy to keep under the age 75 test. So LTA removal is good for me, but the threat of its reintroduction by Labour leaves a right mess.

Do I crystalise the lot in 23/24, but still have a BCE recorded that could be held against me if LTA returns under the same terms. Or do I do it in 24/25, when in theory the whole edifice is dismantled, and my pension provider won't record any BCE. Or 25/26 after Labour get in (as I hope, we need competent and compassionate government), but before their complicated reintroduction legislation that tries to handle a record gap becomes law.

One thing is clear, the Lump Sum restriction means you might as well get it all early once your pot gets to £1.073m. Subsequent growth will be taxed at 8.75 or 10% depending on dividend/CG split, but left in it will be taxed more likely at 40% than 20%

[JohnB]

My lump sum calculations for BRT and HRT

BRT
All lump sum available. 100 withdrawn gives 25+60=85. If it doubles and 10% tax applied to the growth you get 161.50
If it doubles first, but no more lump sum available you get 25+140, so 160

HRT
All lump sum available. 100 withdrawn gives 25+45=70. If it doubles and 10% tax applied to the growth you get 133
If it doubles first, but no more lump sum available you get 25+105, so £130

So you can postpone lump sum taking for BRT, but not for HRT.

[SebsCat]

MrsSC crystallised the full LTA amount earlier this tax year. There is a small extra uncrystallised amount which she will now put into drawdown in the new tax year in line with my general approach of taking what's available now rather than wait. My reckoning is that if the intended LTA abolition does happen then all historic BCEs will effectively be deleted anyway. If a future govt reintroduces the LTA then I would be very surprised if there is any attempt to re-engineer historic transactions as retrospective legislation is rarely a good option.

Prior to the budget, the plan had been to drawdown her SIPP's full dividend income plus any extra (up to the BRT limit) necessary to keep the SIPP at the crystallised level. Now she'll just drawdown the personal allowance amount and we'll use cash savings & non-protected investments instead. That will keep us going until we know whatever the next government intends.

NB: for your calculations, the growth for the HRT needs to be taxed at 20%, not 10 (if the assumption is that they are still HRT when the growth is realised). So 100 withdrawn = 70 gross and if it then doubles the total is just 126. For a specific individual the calculations would also need to take into account how much of the withdrawn amount could be fed into an ISA.

[scrumpyjack]

25/26 after Labour get in (as I hope, we need competent and compassionate government), but before their complicated reintroduction legislation that tries to handle a record gap becomes law.

Anyway, whatever happens, I think pensions will be safer than most assets under a left wing government. Pensions are 'good', whereas private wealth in the form of shares etc (ISA's) are 'unearned' and ripe for plucking. The Blob has so many people with large DB pension pots that Labour may choose not to alienate them and in the manifesto may dial back on Rachel Reeves' hasty and rash promise.

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[Freshwater]

I was at 97% LTA when I turned 55 last week, and was contemplating an aggressive drawdown policy to keep under the age 75 test. So LTA removal is good for me, but the threat of its reintroduction by Labour leaves a right mess.

Do I crystalise the lot in 23/24, but still have a BCE recorded that could be held against me if LTA returns under the same terms. Or do I do it in 24/25, when in theory the whole edifice is dismantled, and my pension provider won't record any BCE. Or 25/26 after Labour get in (as I hope, we need competent and compassionate government), but before their complicated reintroduction legislation that tries to handle a record gap becomes law.

One thing is clear, the Lump Sum restriction means you might as well get it all early once your pot gets to £1.073m. Subsequent growth will be taxed at 8.75 or 10% depending on dividend/CG split, but left in it will be taxed more likely at 40% than 20%

I'm in a similar position, 60% crystallised, over the LTA and considering what to do post 6th April 23.

We'll need to see what additional details emerge over the next few weeks but, of the options you describe, I would say crystallising the lot in 23/24 is currently my preferred path. Crystallising the funds and going into drawdown feels like it would be passing a hurdle and in some way locking in the 0%. Waiting for the LTA to be abolished means living with the uncertainty of what 'new rules' may apply to existing uncrystallised/crystallised funds post April 24. Waiting for the next Government (whoever it is) and any 'new rules' that may apply then, is uncertainty I don't think I could stand while 0% LTA tax is on the table.

[hiriskpaul]

I was at 97% LTA when I turned 55 last week, and was contemplating an aggressive drawdown policy to keep under the age 75 test. So LTA removal is good for me, but the threat of its reintroduction by Labour leaves a right mess.

Do I crystalise the lot in 23/24, but still have a BCE recorded that could be held against me if LTA returns under the same terms. Or do I do it in 24/25, when in theory the whole edifice is dismantled, and my pension provider won't record any BCE. Or 25/26 after Labour get in (as I hope, we need competent and compassionate government), but before their complicated reintroduction legislation that tries to handle a record gap becomes law.

One thing is clear, the Lump Sum restriction means you might as well get it all early once your pot gets to £1.073m. Subsequent growth will be taxed at 8.75 or 10% depending on dividend/CG split, but left in it will be taxed more likely at 40% than 20%

In your case I would probably do half in each year. That way you only use half of your LTA as the LTA and indeed BCE tests will not apply in 24/25. It is currently not known how Labour will reintroduce the LTA, should they do that and crystallising in both years seems to me the best way to hedge your bets. It also means only half the PCLS is sloshing around and subject to tax for the next couple of years.